Canada’s Real Estate Sector Remains Resilient

The Canadian real estate industry is still performing well, according to the 2018 Emerging Trends in Real Estate report published today by PwC Canada and the Urban Land Institute (ULI). Despite the industry’s steady performance, interviewees shared a concern of potential headwinds resulting in some real estate investors rebalancing their portfolios, and others taking a more defensive posture. Affordability concerns remain a dominant theme for residential real estate in Toronto and Vancouverand the report discusses rapid development outside urban centres across the country. The report also finds that investors, developers and occupiers  are rethinking how they approach their real estate investments, from ambitious intensification plans, to building communities, to investments outside major urban centres due to increased focus on new transit-centric hubs.

Commercial Real Estate
According to the report, major pension funds, large institutional investors (including REITs), which already own the majority of Class A properties, given current pricing, are continuing to focus on developing new Class A properties. These new properties could fuse commercial, retail and service properties alongside residential developments building new urban communities.

E-commerce is forecast to grow to 8% in 2018 from 4.5% in 2013.  This growth in e-commerce is having a profound effect on the retail sector and many interviewees believe retail investors need to rethink their overall retail strategy, through enhanced technology application and data analytics, as well as reinventing the retail experience. The growing penetration of e-commerce continues to push fulfillment and warehouses to the top of the list of investment and development prospects in 2018.

“Our national and local economies are greatly impacted by the real estate sector and therefore a healthy industry is good for Canada. Affordability concerns continue to be the major theme we are hearing in the residential markets in cities like Vancouver and the GTA, but there are no really good answers to this issue on the horizon” says Frank Magliocco, National Real Estate Leader, PwC Canada. “Rebalancing, rethinking, and reinventing real estate in an increasingly challenging environment is critical to be successful today, and those that are able to move quickly and leverage strategic partners will be the real winners.”

“Those who can find solutions where others see obstacles are redefining development and creating some new, yet authentically local spaces,” says Richard Joy, Executive Director, ULI Toronto.

Affordability
Housing affordability continues to be an issue and concern for some parts of the country. Higher prices (rental and ownership) are driving people to smaller cities in search of less costly housing options. These new communities are developing as governments are increasing their investments in transit hubs connecting smaller cities and suburbs to urban centres. Some of the major Canadian transit investments currently underway include: the Eglinton Crosstown (Toronto), the Valley Line LRT (Edmonton) and the REM in Montreal.

The report also finds that more than one in three young adult Canadians, aged between 20–34, are living with at least one parent. Higher prices are spurring growth in multigenerational households in markets like Toronto and Vancouver. As a result, developers are now focusing on building larger condos, and adapting homes that can accommodate the various needs of this type of consumer.

The introduction of a foreign buyers’ tax to curtail foreign investment in British Columbia (August 2016) has had little impact on the market, as prices have rebounded to pre-tax levels. Respondents to the survey feel the same about Ontario’s strategy. In addition, there continues to be significant concern about the impact of expanded rent control legislation to the supply of rental apartments in Ontario.

Data Analytics and Technology
Data and technology are significantly impacting the real estate industry for all stakeholders – consumers, investors and developers. According to the report, more than US$2.9B is projected to be invested in real estate technology globally. Some notable advances include consumers viewing properties using 3-D virtual tours, investors using data analytics to find better deals, and developers conceiving entire communities and parks based on new digital design technology.

“With such rapid advancements in new technologies and a competitive landscape, real estate industry players need to have a forward-thinking and comprehensive strategy for assessing and analyzing new solutions, as well as implementing changes – to help drive innovation in this sector. Those who don’t will be left behind,” adds Miriam Gurza, Managing Director, National Real Estate Consulting Leader.

Top Five Canadian Markets to Watch in 2018
VancouverThis market has the highest investor demand and redevelopment opportunities in Canada. However, regional developers and investors anticipate those opportunities will be more conservative in 2018 due to the impact of policy changes and interest rate hikes.

Toronto: Demand will remain high for the best assets, as institutional capital and other investors continue to seek stable long-term opportunities. But these same investors will be careful about their decisions as they seek yield either in development or elsewhere in the world.

MontrealMany institutional players have begun divesting older stock properties to focus on new developments aimed at attracting millennial and seniors’ markets. This is placing some pressure on owners of older buildings to compete and contributing to a growing divergence between new and old.

OttawaThe relative affordability of this market is luring people to the city from other geographic areas, particularly high-priced Toronto, as millennials and young families search for a better, less expensive lifestyle. Technology companies are expanding or moving into this market as well, eager to capitalize on the influx of talent—and doing their best to attract more talent to the city.

WinnipegThough there’s still weakness in the residential sector, it’s offset by an abundance of non-residential activity. The $467-million Southwest Transitway, which will link the University of Manitoba to the downtown, as well as the $400-million True North Square, a four-tower mixed-use project in the downtown core, are just some of the real estate activities pushing Winnipeg into the top five.

Additional quotes from ULI:

“From coast to coast we are seeing continued robust demand to invest in prime real estate in our cities, whether office buildings, industrial facilities, rental apartments and even retail,” says Wendy Waters of ULI British Columbia.

“Even in Alberta where there have been economic struggles, there has been continued investor interest in retail and multi-residential properties,” says Amy Vandervelde, Chair of ULI ALberta

To access the full report, please click here.

About PwC Canada
At PwC, our purpose is to build trust in society and solve important problems. More than 6,700 partners and staff in offices across the country are committed to delivering quality in assurance, tax, consulting and deals services. PwC Canada is a member of the PwC network of firms, which comprises more than 236,235 people in 158 countries. Find out more by visiting us at www.pwc.com/ca.

© 2017 PricewaterhouseCoopers LLP, an Ontario limited liability partnership. All rights reserved.

PwC refers to the Canadian member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see http://www.pwc.com/structure for further details.

About the Urban Land Institute (ULI) and ULI Toronto
The Urban Land Institute (www.uli.org) is a non-profit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in sustaining and creating thriving communities worldwide. Established in 1936, the Institute has more than 40,000 members representing all aspects of land use and development disciplines. The Urban Land Institute is an active and growing organization in Canada. With over 2000 members across the country, Canada’s first ULI District Council ULI Toronto (toronto.uli.org) was established in 2005, with a second District Council in British Columbia and another one being created in Calgary. ULI Toronto has over 1500 members.

SOURCE PwC (PricewaterhouseCoopers)